Liquid mutual funds are one of the debt fund schemes that invest significantly in short-term loans or money market securities, usually maturing between 91 days, making them highly liquid, preserve capital and low in volatility. They offer a hassle-free and easy means of parking excess (additional) funds for a short period of time, from a few days to a few months – with easy access as and when required.
Benefits of Liquid Mutual Funds
No Lock-in Period
Unlike FDs, liquid funds don’t lock your money.
You can withdraw at any time without any charges, thus making them highly flexible.
Perfect for parking excess cash for short-term requirements.
No Entry/Exit Loads (Mostly)
There is no entry load, hence you can invest without paying additional fees.
Exit charge is typically zero, although a small charge might be levied by some schemes if you pull out very rapidly (within 1–7 days).
This makes it inexpensive against many other investments.
High Liquidity
You have the ability to redeem your funds rapidly, and in many cases, receive money in your bank account within 24 hours.
Even some funds provide an instant redemption facility for a limited value.
Who should invest in liquid funds:
Short-term investors: People saving for soon-to-be-expenditure goals such as holidays, school fees, or other bills can park funds in a safe manner.
Emergency fund creators: An emergency fund typically covers 6–12 months of essential expenses, offering a financial cushion of roughly double your regular monthly spending to handle unforeseen contingencies.
Individuals & institutions with cash buffers: Businesses and individuals who have received windfalls, bonuses, or temporary surpluses of cash can invest liquid funds to keep money in safe custody.
First-time investors in mutual funds: Their conservativeness makes liquid funds a hassle-free and risk-free entry point.
How to Invest in Liquid Funds
Offline Process
Complete and submit the application form in the office of the mutual fund house or the mutual fund registrar.
Online Process
Use the website or mobile app of the mutual fund company.
You can also invest by using the app/website of the mutual fund registrar or other investment apps.
You can also check out the Lxme app and look out for Gulluck, which is an expert-curated liquid mutual fund, which allows you to fulfill al your short term goals.
Ways of investing in Mutual fund
Lump Sum: Invest a lump sum amount at any time.
SIP (Systematic Investment Plan): A fixed amount is automatically debited from your bank account on a specified date and invested in the fund.
For women who want a simple, goal-based way to invest, Lxme Gulluck is like a smart digital piggy bank: start small, automate your SIPs, and watch your money grow.
FAQs
What are the risks involved with Liquid Funds?
Liquid funds are conservative investments in short-term, high-quality debt instruments, targeting capital protection and liquid assets. Yet, they too involve risks such as defaults on credit, changes in interest rates, and inflation, although returns are relatively lower than with riskier alternatives.
Are Liquid Funds tax-efficient?
No, After the 2024 Budget, liquid funds invested on or after 01-04-2023 will be taxed like debt mutual funds. All gains, regardless of the holding period, will be treated as short-term capital gains and taxed according to your income tax slab, with no indexation benefits.
Are Liquid Funds appropriate for novices?
Liquid Funds are the best when you want to park your money for a short term while without keeping it locked.
How much can I invest in Liquid Funds?
You can invest anything in liquid funds that suits your budget, as many funds permit initial investments as low as ₹100 or ₹500 with no cap on the maximum amount you can invest.
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